Compute the ratios to evaluate the common stock of Bank S as an investment.

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Chapter D, Problem 21E

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Compute the ratios to evaluate the common stock of Bank S as an investment.

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The attached file contains hypothetical data for working this problem. Goodman Corporation’s and Landry Incorporated’s stock prices and dividends, along with the Market Index, are shown in the file. Stock prices are reported for December 31 of each year, and dividends reflect those paid during the year. The market data are adjusted to include dividends. Use the data given to calculate annual returns for Goodman, Landry, and the Market Index, and then calculate average returns over the five-year period. (Hint: Remember, returns are calculated by subtracting the beginning price from the ending price to get the capital gain or loss, adding the dividend to the capital gain or loss, and dividing the result by the beginning price. Assume that dividends are already included in the index. Also, you cannot calculate the rate of return for 2015 because you do not have 2014 data.)

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Requirement 1. Compute the following ratios for both companies for the current year, and decide which company’s stock better fits your investment strategy. a. Acid-test ratio b. Inventory turnover c. Days’ sales in receivables d. Debt ratio e. Earnings per share of common stock f. Price/earnings ratio g. Dividend payout